What you must know about Sheetal Universal IPO?

Sheetal Universal Ltd is an agricultural commodity and logistics enabler. The company was incorporated in the year 2015 and it is engaged in the business of sourcing, processing, and supplying agricultural commodities like peanuts, sesame seeds, spice, and grains. The company broadly caters to manufacturers of peanut butter, biscuits, cakes, cookies, chocolate, and other food products. It basically is into the sourcing and processing of spices, peanuts, sesame seeds and pulses, and other agricultural products. Sheetal Universal Ltd has a manufacturing and processing plant located at Jamnagar in Gujarat. The plant is spread across an area of 14,668 square metres (SQM). Sheetal Universal Ltd is a member of the Agricultural & Processed Food Products Export Development Authority (APEDA) as well as the Indian Oil Seeds & Produce Export Promotion Council. The company also has 2 subsidiaries that process and export agricultural commodities like oil seed, grains, etc.

The client base of Sheetal Universal Ltd is geographical well spread out and their presence includes Russia and adjoining nations, Indonesia, Malaysia, Vietnam, United Arab Emirates, Iran, Algeria, Israel, Turkey, and Egypt. For the fiscal year FY23, the company had reported total revenues of nearly ₹130 crore. Over the years, the company has developed several competitive advantages in this business. Firstly, it has a strategic geographical location, due to its proximity to the Middle East, Africa, and the South East Asian nations. It has a geographically diversified client base with strong established relationships over the years. It is also technologically well-tuned and its business model is relatively scalable.

Key terms of the Sheetal Universal IPO (SME)

Here are some of the highlights of the Sheetal Universal IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 04th December 2023 and closes for subscription on 06th December 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a fixed price issue. The issue price for the IPO has been already fixed at ₹70 per share. Being a fixed price issue, there is no question of price discovery in this case.
   
• The IPO of Sheetal Universal Ltd has only a fresh issue component with no book built portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh portion of the IPO, Sheetal Universal Ltd will issue a total of 34,00,000 shares (34 lakh shares), which at the fixed IPO price of ₹70 per share aggregates to a total fund raising of ₹23.80 crore.
   
• Since there is no offer for sale portion, the total size of the fresh issue will also be the total size of the IPO. Hence the total IPO size will also comprise of 34.00 lakh shares, which at the fixed IPO price of ₹70 per share will aggregate to ₹23.80 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 1,72,000 shares. The market maker for the issue is Spread X Securities Private Ltd and they will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Hiren Vallabhbhai Patel and Kajal Biren Patel. The promoter holding in the company currently stands at 95.00%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 66.81%.
   
• The fresh issue funds will be used by the company for funding their capex plans and for filling up their working capital funding gaps. Part of the monies raised will also go towards meeting the general corporate expenses of the company.
   
• Beeline Capital Advisors Private Ltd will be the lead manager to the issue, and Bigshare Services Private Ltd will be the registrar to the issue. The market maker for the issue is Spread X Securities Private Ltd.

IPO allocation and minimum lot size for investment

Sheetal Universal Ltd has allocated 5.06% of the issue size for the market makers to the issue, Spread X Securities Private Ltd. The net offer (net of market maker allocation) will be divided equally between the retail investors and the HNI / NII investors. The breakdown of the overall IPO of Sheetal Universal Ltd in terms of the allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 2,000 shares. Thus, retail investors can invest a minimum of ₹140,000 (2,000 x ₹70 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 4,000 shares and having a minimum lot value of ₹280,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Check Sheetal Universal IPO GMP

Key dates to be aware of in the Sheetal Universal IPO (SME)

Sheetal Universal IPO opens on Monday, December 04th, 2023 and closes on Wednesday, December 06th, 2023. The Sheetal Universal IPO bid date is from December 04th, 2023 10.00 AM to December 06th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is December 06th, 2023.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account.

Financial highlights of Sheetal Universal Ltd

The table below captures the key financials of Sheetal Universal Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years.

• The revenue spike has been sharp in the latest year, although the previous year growth has been tepid. In the latest year, the revenues have jumped more than 3-fold, which has taken the revenues to a new plane altogether.
   
• The net margins have been in the range of 1-2% in the latest year. However, here again, the comparisons are tough since the company profits and top line got a big boost only in the latest year. Prior to that it was tepid. However, the latest year ROE is quite attractive at 30.66% and that should help the stock to sustain valuations.
   
• Being a capital light business, the asset turnover ratio or the asset sweating ratio has been above 4 in the latest year, which is not too surprising. This may not be too representative as here the expenses ratio would matter more than the asset turnover ratio, in this sector.

The company has latest year EPS of ₹2.56 and weighted average EPS of ₹1.46 for the last 3 years. However, a lot will depend on what level the EPS sustains in the long run since growth has been quite robust only in the latest year. By latest year valuations, the company looks fairly well priced, so it is the sustainable EPS that will matter. The P/E ratio at 27.35X on the issue price, really does not leave much on the table for the investor on listing. The focus would be on the next few quarters. This is generally a cyclical and low margin business so investors must keep that risk factor while investing. The IPO of Sheetal Universal Ltd is ideally suited for the investors willing to take on higher risk and who can wait for longer.